My Advice to Newbie Traders: Three Ground Rules
The $5,000 lesson that laid the foundation of my trading philosophy.
Photo by Lucas Canino on Unsplash
Many years ago, I was just starting out in trading. My first take was $5,000 trading account with a broker from Australia who had just entered our market.
They had a fantastic modern office in one of the newest business centers at the time.
What convinced me to choose them was meeting the head of the analytical department.
He came out to meet me from a room with glass walls, behind which I could see dozens of people watching constantly changing charts on huge, modern monitors.
It seemed so cool - people capable of processing enormous amounts of data and making quick, profitable decisions!
The Hook
Time passed. Occasionally, I speculated with CFDs on AAPL, but not very actively.
One day, that same head of the analytical department called me and offered to trade with an analyst.
The offer was standard - if the recommendation was successful, the broker received an additional percentage of the profits beyond their usual commission. In the case of failure, the broker only received the commission.
Nothing unusual, I thought.
I remembered the people staring at the monitors with charts. I figured it would be a shame not to pay to use the help of one of these superhumans. So, I agreed.
For the first three months, everything went well: every business day, we had a call with the analyst before the trading session. He told me what happened with yesterday's trades, then shared his trading ideas, which I approved because I had none of my own.
During this period, the analyst made me about $10,000. It seemed my analyst had tripled my capital.
I was overjoyed!
Catastrophe
Then, one fine day, I requested a withdrawal of $5,000 back to my bank account. During our next call, I approved a few more of the analyst's ideas.
The next day, disaster struck - the analyst told me during our call that we had lost everything. 15 grand vanished…
"How could we lose everything?" I was shocked, and could barely speak.
"Well," he said, "some negative news came out, oil prices reversed, we were leveraged, and our positions were automatically closed."
He explained it like it was just one of those things. But not to worry - there was a way to recover the losses.
My first reaction, of course, was - let's do it! Luckily for me, I didn't have any free money at that moment.
This prevented me from adding more funds and gave me time to think about what had happened.
My Ground Trading Rules
Events like this are tough lessons that shape us. But how we let them shape us is our choice. I ended up with these three rules that became the foundation of my today's trading philosophy:
Own Your Strategy
Always open positions yourself. Always know why you do what you do.
Don't copy. If you don't have your own ideas - don't trade.
When someone holds your hand, everything seems easy, but you learn nothing.
Let yourself fail, and put those failures in your piggy bank. Improve. Repeat.
Limit Your Risk
You will lose.
The winner isn't the one who always goes all-in, but the one who stays in the game long enough.
Time spent in the game is essential to learn how to win more than you lose. Give yourself that time.
Prepare before the Battle
Get used to backtesting - and do it as much as you can. Prove your ideas would have worked in the past before going live with them.
No one guarantees a backtested idea will win.
But every backtest is your chance to drop a bad idea without actually losing money.
Remember: you want to stay in the game as long as possible. Backtests are your best friend in this.
About me
I'm a software architect passionate about trading and investing.
I believe that anything can be achieved with hard work and iterations. Trading for me is a marathon, not a sprint.
I have built the profit-signals.com - the rapid trade strategy development platform. It saves me hours of work every week, automating mundane ticker screening and idea backtesting.
You can find me on Telegram: @yuryprokashev